Is economic growth in the United States coming to an end?

Amit Batabyal, BridgeTower Media Newswires

In his 1985 Marshall lectures at Cambridge University, the Nobel laureate Robert Lucas commented on the significance of national economic growth. According to him, once one ponders what governments might do to promote growth in their nations and then studies the consequences of such growth-inducing policies, one becomes aware of the tremendous implications of such policies for human welfare. As professor Lucas put it, once one starts to think about these matters, it is hard to think about anything else.

In the last decade, there has been growing concern that the U.S. economy is slowing down and that it may simply not be possible any longer to aspire to sustained economic growth in the future. For a technologically advanced and complex economy such as ours, it is helpful to ask what the key factors are that cause economic growth. Of course, we need the standard inputs such as land, labor, and capital but these inputs are available, to varying degrees, in all economies in the world. What really sets the U.S. economy apart is its dynamism, i.e., the conduct of research and development that leads to the generation of new ideas that then lead to new products and services and these lead to faster economic growth.

Once one subscribes to this ideas-based view of economic growth, it is easy to describe the relationship between economic growth and ideas. Specifically, economic growth equals the product of research productivity and the number of researchers. So if one is worried about falling economic growth then one is really worried about declining research productivity or a decline in the number of researchers or both. What does the available data tell us about research productivity and the number of researchers in the U.S.? Let us find out.

Important new research by the economists Nicholas Bloom, Charles Jones, John Van Reenen, and Michael Webb sheds valuable light on the above question. These researchers look at the data for salient sectors within the U.S. economy and for the U.S. economy in the aggregate. Their findings make for sobering reading.

Consider semiconductors. In this sector, Moore’s Law says that the number of transistors that can be packed onto a computer chip doubles approximately every two years. This Law held for almost five decades but now things have changed. Professor Bloom and his colleagues show that the number of researchers needed to double chip density today is more than 18 times larger than the number required in the early 1970s. In other words, research productivity in semiconductors has been falling and therefore, to maintain a particular growth rate, we need many more researchers working in the semiconductor sector.

Might this decline in research productivity be limited to semiconductors only or perhaps to a small number of sectors in the U.S. economy? Unfortunately, the answer is “No.” Professor Bloom and his colleagues demonstrate that research productivity has declined in agriculture and also in medicine. This leads them to conclude that research productivity was declining at a substantial rate in virtually every place they looked.

Departing from individual sectors to look at the aggregate U.S. economy, the findings of professor Bloom and his team are no less saturnine. Research productivity has been falling by half every 13 years and this means that ideas are increasingly getting more difficult to find. In other words, just to maintain constant growth in the gross domestic product per person, the U.S. needs to double the amount of research effort every 13 years to compensate for the rising difficulty of finding new ideas.

Given these findings, the key policy question that needs to be answered is this: Why has research productivity in the U.S. been declining? Might research productivity decline with firm size? Is it possible that firms are increasingly conducting “defensive” research to protect their market positions and that this is causing research productivity to fall? Finally, might the decline in publicly funded research be responsible for the decline in research productivity? These are only some of the possible answers but new research is urgently needed to shed light on the above key question. A resolution of this matter will, in time, yield dividends for all Americans.


Amit Batabyal is the Arthur J. Gosnell professor of economics in the Rochester Institute of Technology but these views are his own.